PEV December 2008

michaelar25

Hiya

Can anyone explain section 1 task 1.1 b) Direct material (glass) price variance. I am getting the price as 27,000 Adverse but the answers say 21,000 Adverse and im totally stuck on were the answers coming from.

Thanks Michaela

p.s Good Luck everyone doing exams next week

sdv

Budgeted material price = 120 000/10 000 = £12 / Kg

Actual material price = 147 000 / 10 500 = £14/Kg - paid more then budgeted = ADVERSE VARIENCE

Material purchased 10500 kg x (14 - 12) = £21000 Adverse

michaelar25

Thank you, thats really helped i understand now. You couldnt just explain the direct material (glass) usage variance?

sdv

Expected Usage = 2100 units times 5kg per unit (10,000/2000 units) = 10,500 KG
ACTUAL Usage = 10,500 Kg (same as expected) therefore no varience at all

calculation

(10,500 - 10,500) x £12 per KG = NIL

Nikolia

Dec 2008 exam PEV

Can someone explain to me how in Dec 2008 exam in Section 2 task 2.1 (a) the raw materials stock turnover in days was calculated?

Formula is: Stock/Cost of sales x 365 days.
In this task stock is 60,000 and cost of sales is 786,000. So the answer is 60,000/786,000x365= 27.86 days. However the correct answer is 40.56 days.

I realised that it was calculated as: Stock of material (glass)/Direct materials (glass)x365 (60,000/540,000x365=40.56 days). But that is not divided by cost of sales as formula says? Or cost of sales is meant to be just the cost of materials if we count stock turnover for materials?

Please explain it to me!!!

sdv

Nikolia wrote: »

I realised that it was calculated as: Stock of material (glass)/Direct materials (glass)x365 (60,000/540,000x365=40.56 days). But that is not divided by cost of sales as formula says? Or cost of sales is meant to be just the cost of materials if we count stock turnover for materials?

Please explain it to me!!!

Cost of sales - you are comming from Financial accounting perception. Even in Financial accounting cost of sales does not include Labour costs and Overheads costs, Both of these are treated as business expenses after gross profit.

From costing point of view it's Stock material turn over and therefore it has to be stock of materials divide by Cost of Materials purhased times 365 = 40.56 days. This ratio actually tells us that we hold 40 days worth of stock in our warehouse. If there is a strike or stock stock shortage we can maintain production for the next 40 days

Nikolia

Thank you!!!

nosaj

thanks for this explanation as well I just log on to ask explanation on this i was just working the same paper and could not get the answer they have.